In August 2014, the Respondents served a lease extension notice pursuant to section 42 of the Leasehold Reform Housing and Urban Development Act 1993 (the “Act”).

In October 2014, the Appellant served a counter-notice, pursuant to section 45 of the Act, admitting that the Respondents had the right to acquire a new lease. In its counter-notice, the Appellant proposed a premium on the new lease of £10,981.

The terms of the new lease were agreed a few months later and the lease was completed on 12 March 2015.

The issue referred to the First Tier Tribunal (FTT) concerned the Appellant’s recoverable costs under Section 60 of the Act.

Section 60 Costs

Section 60 provides that, where notice is given under section 42, the tenant shall be liable for the reasonable costs of and incidental to the granting of the lease (section 60(1)(c)). Once the matter was referred to the FTT, the Appellant submitted a detailed statement of costs which dealt with three categories of work carried out in respect of the new lease, namely:

(a)the work carried out dealing with the notice of claim and valuation matters;

(b)the work carried out dealing with the grant of the new lease itself; and

(c)the work carried out by the valuer

In total, the Appellant asked for £1,725:

·£1,350 (inclusive of VAT) for costs under sub-heading (a) above, and

·£720 (inclusive of VAT) for costs under sub-heading (b) above.

In submissions to the FTT the Respondents, amongst other considerations, made the following important points:

1.There had been a previous FTT decision concerning another property the Appellant owned in the same development, in which the Appellant’s solicitors were instructed.

2.In that case, the Appellant’s costs were reduced from £1,725 to £845.

3.The Respondents said the two cases were “almost identical”.

4.The Respondents further pointed out that there were 21 further lease extensions lodged in respect of other properties within the same development the Appellant owned and that given the repetitive element of work, it was unreasonable for the Appellant’s solicitors to “exploit their monopoly position in their fee charges”.

In the previous decision, the FTT held that certain items of the Appellant’s solicitor’s work could not be levied to the Respondents as they did not properly fall within the meaning of section 60 of the Act, namely the drafting of the counter-notice. The FTT said that because the Appellant was taking care of over 20 other applications for lease extensions within the same development it should have negotiated, or attempted to negotiate, a fixed fee with the solicitors.

Finally, the FTT said that it was not necessary for the solicitors to instruct a “grade ‘A’ fee earner” to deal with the valuation point.

The FTT applied the same decision as it had previously.

Appeal to the Upper Tribunal (the “UT”)

The Appellant’s submissions in the appeal centred around three main points:

1.That the FTT was wrong to exclude certain elements of the fees in their interpretation of section 60 i.e. the drafting of the counter-notice;

2.That it was wrong to say that the Appellant should have sought a fixed fee agreement; and

3.That it was wrong to adopt the same conclusion as in the previous case rather than consider the individual facts of the Appellant’s case and the separate bill of costs that had been submitted.

Recoverability of costs associated with drafting the counter-notice:

In considering proper service of the counter-notice, the UT held that it was of great importance for the Appellant to instruct a solicitor to consider and properly advise on the Respondents’ claim for a new lease and the terms of the counter-notice. Failure to serve a proper counter-notice would have had serious adverse effects on the Appellant’s position as landlord. Taking these points into consideration, the UT said that it fell within the scope of section 60(1), i.e. the recovery of reasonable costs of and incidental to the matters within sub-heading (a), (b) and (c) above.

Instructing a valuer, it said, was reasonable for the purposes of fixing a premium; furthermore, it was found reasonable to instruct a grade ‘A’ fee earner and solicitors with the requisite experience in this specialist area of law to do so.

However, given that this was not a one-off transaction, rather one in a possible series of new leases granted within the development, it could not be said that a reasonable amount of time had been spent on the work by the Appellant’s solicitors. It was found that there had been a clear opportunity to try to negotiate a fixed fee discount which was not taken up by the Appellant.

Furthermore, the Appellant had put forward no evidence to show the contrary, nor had offered a good reason as to why it had not at least attempted to negotiate such arrangement. By omitting to do so, the Appellant could not discharge the burden of proving that its solicitor’s fees were reasonable in the circumstances.